CMBS Delinquencies Climbed Once Again in April
The CRED iQ delinquency rate for CMBS for the month of April increased for the third consecutive month to 3.93 percent.
The delinquency rate was 16 basis points higher than the prior month’s rate of 3.77 percent. Increased distress in commercial real estate has deservedly dominated the March and April news cycles, and underlying data compiled by CRED iQ for April underpinned continued commentary on industry distress.
The delinquency rate is equal to the percentage of all delinquent specially serviced loans and delinquent non-specially serviced loans, for CRED iQ’s sample universe of $600 plus billion in CMBS conduit and single-asset single-borrower (SASB) loans. CRED iQ’s special servicing rate, equal to the percentage of CMBS loans that are with the special servicer (delinquent and non-delinquent), declined month-over-month to 5.39 percent from 5.53 percent. April’s decline in the special servicing rate indicated that workout activity was present and ongoing in the wake of additional delinquencies.
Aggregating the two indicators of distress — delinquency rate and special servicing rate — into an overall distressed rate (delinquency plus special servicing percent) equals 6.08 percent of CMBS loans that are specially serviced, delinquent, or a combination of both. The increase in delinquent loans outweighed a relatively smaller decline in special servicing for a net increase in the overall CMBS distressed rate, which compares to the prior month’s distressed rate of 5.73 percent. Distressed rates generally track slightly higher than special servicing rates as most delinquent loans are also with the special servicer.
Headwinds intensified for the office sector in April 2023 after additional delinquencies were the source of a month-over-month surge in the percentage of delinquent office loans. The delinquency rate for loans secured by office properties increased to 3.81 percent, which was 72 basis points higher than March and represented a 23 percent month-over-month increase.
The office delinquency rate has increased for five consecutive months and is more than two times higher than a year prior. Drivers behind April’s rise in office delinquencies included a $240 million mortgage secured by 600 California Street, a 359,883-square-foot office tower in San Francisco. The loan was recently reported as 30 days delinquent and also transferred to special servicing in late March. The embattled coworking firm WeWork is a primary tenant at the property, leasing 52 percent of the net rentable area (NRA), and is also a general partner in the ownership structure of the building.
The consistent rise in office delinquency is concurrent with a recovery in lodging delinquency, drawing the delinquency rates for both property types closer together. The lodging delinquency rate as of April was 4.21 percent, a decline compared to March’s rate of 4.58 percent. As a point of reference, the delinquency rate for lodging in 2020 during the onset of the pandemic was north of 20 percent — a substantial recovery for the hospitality industry. April’s delinquency decline for lodging narrows the gap between office delinquency (3.81 percent) and lodging delinquency (4.21 percent) to just 40 basis points.
The delinquency rate for retail (7.55 percent) exhibited a month-over-month decline while the CMBS multifamily delinquency rate (3.25 percent) increased for the second consecutive month. Delinquency rates for industrial (0.33 percent) and self-storage (0.05 percenrt) were relatively unchanged compared to the prior month.
Shifting focus to special servicing rates, CRED iQ observed increases for the office, lodging, and multifamily sectors. Only the special servicing rate for retail properties (11.04 percent) exhibited a month-over-month decline.
Office again took the spotlight as the property type with the highest percentage change in special servicing, increasing from 4.97 percent as of March to 5.57 percent as of April — equal to a 12 percent change. Central business district submarkets were responsible for an oversized segment of newly transferred office loans. Examples included an $84.5 million mortgage secured by The Wanamaker Building in Philadelphia and a $56.5 million loan secured by a 190,385-square-foot office building located at 1201 Connecticut Avenue NW in Washington, D.C. Both properties are encumbered by floating-rate debt, factoring into the loans’ credit concerns.
CRED iQ first noted lease expiration concerns for The Wanamaker Building’s primary tenants back in April 2022. Loans secured from suburban office properties were not immune from adverse headwinds either. A $350 million mortgage secured by a 2.2 million-square-foot, eight-property suburban office portfolio owned by Adventus Realty Trust, with properties in Illinois and Georgia, transferred to special servicing in mid-March 2023. Additionally in mid-March, a $161.4 million mortgage secured by nine Brookfield office properties, primarily located in suburban Washington, D.C., transferred to special servicing.
Aside from the office sector, the special servicing rate for lodging came in at 6.35 percent, a modest increase compared to March 2023. Multifamily (4.02 percent) also exhibited an increase in its special servicing rate. The special servicing rate for industrial properties remained relatively unchanged while self-storage did not have any specially serviced inventory.
CRED iQ’s CMBS distressed rate by property type accounts for loans that qualify for either delinquent or special servicing subsets. April’s overall distressed rate for CMBS rose to 6.08 percent. The increase was 35 basis points higher than March’s distressed rate (5.73 percent), equal to a six percent increase. CRED iQ’s overall distressed rate is at its highest level since March 2022.
Marc McDevitt is a senior managing director at data analytics firm CRED iQ.